Soft target

The current federal budget for the upcoming fiscal year includes an increase in salaries for government employees, intended to improve their standard of living and counter inflation. However, this increase is coupled with new tax measures that effectively reclaim a significant portion of the salary hike. Unlike other sectors where tax evasion is more feasible, the salaries of public-sector workers are well-documented and easier to regulate, making them reliable contributors to tax revenue.

The tax strategy in Pakistan’s budget includes adjustments in income tax brackets and the introduction of new surcharges, which lead to higher direct tax deductions from the increased salaries of government employees. Additionally, increases in VAT or sales taxes on goods and services consumed by these employees further reclaim a portion of the salary hikes indirectly. Government employees serve as a soft target for tax revenue due to the ease of taxation on their documented incomes. This helps the government achieve its tax revenue goals, albeit at the cost of reducing the net benefits of salary increases for these employees.

Dr Intikhab Ulfat

Karachi